Politics

State could continue U.S. programs for 3 months

Memo examines effects of possible federal failure

Madison - Wisconsin stands to lose much of its federal funding if President Barack Obama does not reach an agreement with House Republicans on the debt ceiling by Aug. 2, but it would be able to maintain its federal programs for at least three months using state dollars, according to a memo released Monday by the state Department of Administration.

On July 15 Gov. Scott Walker ordered Administration Secretary Mike Huebsch to conduct a review across state government to determine what services would be at risk in the event of a federal default.

According to the memo, federal funds make up about 29%, or $9.3 billion, of the state budget each year. Huebsch said Wisconsin has enough funds available from other sources to continue federal programs into the fall.

Huebsch said the country's lowered bond rating resulting from a default would also affect thousands of local governments.

"It will obviously have a negative impact across the economy," Huebsch said in a conference call with reporters.

Andrew Reschovsky, a professor of public affairs and applied economics at UW-Madison, said a federal default could sour the economy and slow job growth, which in turn would hurt state tax revenue.

"There are lots of avenues through which the state could be at risk," he said.

If the state does not use its own money to close the federal funding gap, areas that would be particularly affected include veterans assistance programs, welfare services, Medicaid health care programs, and University of Wisconsin research grants and financial aid.

The Department of Administration stands to lose $350 million in federal low-income heating assistance and weatherization programs, $24 million in housing funding for homeless shelters and residential repair contracts, and $140 million for law enforcement training and other programs.

Although the state would not have enough money to cover expensive programs such as Medicaid, which costs Wisconsin $350 million in federal funds per month, Huebsch said his department is expecting the federal government to make funding such programs a priority if it can't pay all its bills.

"This is very different from the federal government shutting down . . . they will prioritize with the money that they do have available to them," Huebsch said.

Still, officials in the U.S. Treasury Department have not indicated how the government would prioritize its debt repayment funds.

Jon Peacock, research director for the Wisconsin Council on Children and Families, said he assumes the federal government would prioritize payments for programs such as unemployment insurance and food stamps.

"When you cut them off, it starts rippling through the economy pretty fast," he said.

Patrick Marley of the Journal Sentinel staff contributed to this report.